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Surge in Storms Could Bring Flood Insurance Changes

The National Flood Insurance Program (NFIP) was created by Congress in 1968 to offer property owners flood protection that is generally excluded from homeowner’s insurance. Unfortunately, the recent spate of hurricanes and storms has put the program under the microscope.

An NFIP policy can be purchased for coverage of up to $250,000 for the home structure and $100,000 for the home’s contents. Note that this policy does not currently cover expenses stemming from “loss of use” of a home.

The number of claims emanating from September’s weather events is expected to substantially increase the program’s already sizable debt. The NFIP has been altered by legislation in the past to keep up with the growing need for coverage and the funding resources to provide it. For example, in 2012 Congress passed the Biggert-Waters Act, which authorized an increase in premiums and other provisions to ensure the program could remain financially stable and solvent.

However, premiums increased so much in some high-risk coastal areas that public outcry prompted additional legislation in 2014, known as the Homeowners Flood Insurance Affordability Act. This legislation rolled back many of the premiums increased by the 2012 act.

In the short term, it will be necessary for Congress to increase the program’s borrowing authority to pay outstanding claims. Long term, other solutions will need to be examined, ranging from raising premiums once again to encouraging or mandating that more property owners purchase flood insurance — which is one way to help keep premiums from rising.

Use of Retirement Plans Allowed in Hurricane Recovery

After Hurricanes Harvey and Irma, the Internal Revenue Service announced that employer-sponsored retirement plans, including 401(k)s, can be used to take hardship distributions. The relaxed rules apply to account owners and members of their families who live or work in disaster areas that have been designated by FEMA for individual assistance (visit https://www.fema.gov/disasters for the list).

This means eligible account owners can access retirement funds quickly and may even continue making 401(k) and 403(b) contributions — a provision generally banned for at least six months by employees who take hardship distributions. The IRS rule also includes the following provisions:

  • An eligible plan participant may withdraw funds from his or her retirement account up to the specified statutory limits of the plan.
  • Money may even be withdrawn by a non-victim to help out a family member living or working in an affected area.
  • Eligible family members include sons, daughters, parents, grandparents or other dependents.
  • Hardship distributions may be used for food, shelter or other uses normally not applicable.
  • Funds subject to this exception must be withdrawn by Jan. 31, 2018.

Be aware that hardship withdrawals are not considered loans for tax purposes. Therefore, these distributions are generally subject to both ordinary income taxes and a 10 percent early-withdrawal penalty.

Avoid Buying a Flood-Damaged Used Car 

Because flood water contains dirt and sometimes salt, it is particularly corrosive in automobiles. The cost to clean and recondition a flood-damaged vehicle could well exceed its value, rendering it “totaled” from an auto insurer’s viewpoint. However, thousands of flood-damaged cars are cleaned up and resold each year.

The following tips can help you check for flood damage:

  • Check the title history by running its vehicle identification number (VIN) through CarFax, Experian’s Auto Check or VinCheck.
  • Have a qualified mechanic inspect it for hidden water damage.
  • Pull up a corner of the carpet to see if there is water residue or stain marks, signs of rust, evidence of mold or a musty odor.
  • Look for water or signs of condensation in headlamps and taillights.
  • Check for rust in wheel wells and around the doors, hood and trunk panels.
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